Japan the model?

Joseph Stiglitz has a piece at the New York Times praising Abenomics as “a huge step in the right direction.” At the same time, however, he also argues that Japan’s malaise was never as bad as the popular narrative suggested. In fact, Japan, Stiglitz writes, should be viewed as a model for the United States as it struggles with its own sluggish economy and mounting inequality.

However, there are a few problems with Stiglitz’s account of Japan’s recent history and the extent to which it can serve as a model for the US.

First, Stiglitz uses static measurements of inequality in Japan and the US, both in terms of the Gini coefficient after taxes and redistribution and in terms of the average income of the top 10% of earners relative to the average income of the bottom 10% of earners. However, the OECD’s data shows that while Japan is more equal than the US, it is significantly less equal than it was in the 1980s. The trend looks the same even if one looks at working age population instead of total population.

When one looks at Japan compared with countries other than the US or with the OECD average, Japan looks considerably less impressive. Here’s Japan compared with the G7 countries in terms of its Gini coefficient after taxes and transfers:

Japan’s performance is not quite as bad as the US and the UK, but it’s not substantially better either.

In short, it’s a bit puzzling for Stiglitz to praise Japan as a model for the US on equality grounds, especially since concerns over inequality have been strong over the past decade in Japanese politics.

That brings me to the second question I have about this article. Stiglitz wants to reexamine the “popular narrative” of Japan’s stagnation but he doesn’t indicate with whom exactly he is arguing. By now, the idea that in per-capita terms Japan’s “lost decades” haven’t been quite so gloomy seems to have at least made inroads in non-Western discourse about Japan. However, as noted above, arguably the Japanese people themselves still believe that the “lost decades” were in fact lost. How else can one explain the broad public support for the Abe government’s economic program? Without a popular narrative of stagnation in Japan there is no Abenomics.

Third, Stiglitz is too quick to praise the Abe government for taking on structural reform. The “third arrow” of structural reform remains nothing more than rhetoric — and will continue to be nothing more than rhetoric at least until the fall’s special session of the Diet. Given that Japanese governments have been seeking to promote the “structural transformation” of the Japanese economy since at least the 1980s and given the LDP’s historical ambivalence towards structural reform, one has reason to be skeptical, at least for now.

So is Stiglitz right to present Japan as a model for the US to follow? Both in terms of Japan’s past performance and the current performance of the Abe government there are reasons to refrain from putting Japan on a pedestal. Even if Japan’s economy is not quite as bad as is sometimes argued, it is far from being a shining example of coping with stagnation. The quality of life for many Japanese has worsened, particularly for those living outside of Tokyo. Young Japanese still enter a workforce in which they have limited career opportunities if they fail to secure regular employment upon graduation. As Stiglitz himself acknowledges, poverty among the elderly is not inconsiderable. The US shares many of these problems, of course, but given how much Japan has struggled, not entirely successfully, to preserve the quality of life its citizens once enjoyed Japan is still more a cautionary tale than a model. For now, coming after years of halfway measures or inactivity by the Japanese government Abenomics is perhaps best described as a last-ditch effort to revitalize the Japanese economy rather than as a decisive program to overcome stagnation.